Resources, Capabilities and New Venture Growth Choice
Huan Zou
Business School
Loughborough University
Leicestershire
LE11 3TU
Tel: 44 (0)1509 228219
Fax: 44 (0)1509 223960
Email: H.Zou@Lboro.ac.uk
Xiaoyun Chen
Faculty of Business Administration
University of Macau
Avenida Padre Tomás Pereira, Taipa,
Macau, China
Tel: 853 83974168
Fax: 853 28838320
Email: XYChen@umac.mo
Abstract:
A distinct increasing interest in entrepreneurship literature has been paid specifically to new venture
growth, yet it has neglected the importance of how the growth is occurring. This paper therefore extends
previous work by identifying the “how” strategic decision on new venture growth from the resource-based
perspective. New ventures, regarded as different collections of tangible and intangible resources, choose
strategic decisions based on specific sets of resources. We further argue that internal growth and external
growth use different sets of resources and capabilities and, therefore, may require different platforms to
acquire and accumulate these bundles.
This paper focuses on high-technology new ventures in China for two main reasons. First, there has been
rather limited investigation of the RBV in transitional economies in entrepreneurship research, we provide
empirical evidence to demonstrate whether the existing research have any bearing on new venture growth
strategy in China, the largest transitional economy. Second, the growth of high-tech new ventures in China
has increased dramatically in the past decade, and has become an important but under-explored topic for
both practitioners and academia. We argue that in the context of small and new firms which are embedded
with liability of newness and smallness, together with the uncertainties and risks in transitional economies,
selected growth strategies act as the generative mechanism through which resources are pursued and
exploited.
We identify three generic growth patterns of Chinese high-tech new ventures – organic growth,
partnership growth and acquisition growth based on 252 completed questionnaires. Consideration has
been given to identify respective resources and capabilities associated with different growth strategies.
Technological capabilities, strong and weak networks, marketing capabilities and financial resources are
found to have different effects on different new venture growth strategies.
Key words: New venture growth; resource-based view of the firm; networks; China
1
Resources, Capabilities and New Venture Growth Choice
1. Introduction
A distinct increasing interest in entrepreneurship literature has been paid specifically to new
venture growth (Gilbert, McDougall, & Audretsch, 2006). Earlier studies on new venture growth
draw on the Industrial Organization (IO) literature, whereby new venture growth performance is
influenced by industry structure and environment (McDougall, Robinson, & DeNisi, 1992). The
resource-based perspective has been adopted recently to complement traditional approach,
addressing the importance of valuable resources and capabilities that an entrepreneur possesses
and exploits in an effective manner (Arthurs & Busenitz, 2006; Kor, Mahoney, & Michael, 2007;
Ostgaard & Birley, 1994; Ostgaard & Birley, 1996). However, the bulk of the new venture
growth literature has focused on understanding why some ventures grow more than others,
neglecting the importance of the question that how growth is occurring. As Gilbert et al. (2006:
938) suggest, it is salient to investigate how new ventures grow in order to “enable understanding
of the challenges potentially affecting new firm growth”. This paper extends previous work by
identifying “how” strategic decisions on new venture growth are made form a resource-based
perspective.
According to the resource-based view (RBV) (Barney, 2001; Newbert, 2007),
entrepreneurship is viewed as a process by which entrepreneurs or entrepreneurial teams identify,
acquire and accumulate resources to purse perceived opportunities (Ireland, Hitt, Camp, &
Sexton, 2001; Jarillo, 1989; Roberts, Stevenson, Sahlman, Marshall, & Hamermesh, 2006). Once
new ventures can develop, acquire or exploit certain key resources which are valuable, rare,
inimitable and non-substitutable, they are likely to attain sustainable competitive advantage and
2
enjoy better performance in the market (Alvarez & Barney, 2007; Barney, 1996; Barney, 2001).
Although recent research is anchored in this perspective, the explicit usage of the RBV in the new
venture literature has been rather limited especially in transitional economies (Bruton & Rubanik,
2002). As the transitional economies move toward market-based economies, improved
knowledge about entrepreneurship has become critical both for theory and practice. Great
disparity in culture, society, and political and economic systems between transitional economies
and developed ones challenges the existing entrepreneurship literature developed and empirically
tested primarily in the West, which presents grounds to refine and test existing theories and to
develop new ones (Tan, 1996).
New ventures, regarded as different collection of tangible and intangible resources, are based
on strategic decisions to combine specific sets of resources (Chandler & Hanks, 1994). We
further argue that internal growth and external growth use different sets of resources and
capabilities and, therefore, may require different platforms to acquire and accumulate these
bundles. Ventures pursuing organic growth are likely to emphasize technological development
which may contribute significantly to growth (Zahra, 1996), whereas ventures pursuing external
growth may find marketing and networking capabilities to influence growth more strongly
(Shepherd, 1991). The demand on financial resource may also be differential depending upon the
types of strategic initiative a venture undertakes (Abernathy & Clark, 1985; Winborg &
Landstrom, 2001). All of these considerations build on the premise that specific resources and
capabilities are associated with different growth strategies.
This paper focuses on high-technology new ventures in China for two main reasons. First,
responding to Bruton and Rubanik (2002) ’s call that there has been rather limited investigation
of the RBV in transitional economies in entrepreneurship research, our study provides empirical
evidence to demonstrate the significance of resources on new venture growth strategy in China,
3
the largest transitional economy. Second, the number of high-tech new ventures in China has
increased dramatically in the past decade, which makes venture growth an important but underexplored topic for both practitioners and academia.
2. Theory and Hypotheses
Scholars in the field of strategy view firms as collections of various resources. Although the
differences between resources and capabilities are clearly conceptualised, it is difficult to divorce
the concepts of resource and capability especially in methodological terms (Chandler & Hanks,
1994; Newbert, 2007), In general, the RBV proposes that resources are heterogeneously
distributed across firms, and typically include all assets, capabilities, processes and knowledge
controlled by a firm (Barney, 1991; Newbert, 2007; Penrose, 1959).
The presence of given resources enables new ventures to build competitive advantage
(Barney, 1991), conceive and implement strategies, and promote growth (Barney, 1996; Penrose,
1959). However, new ventures often face constraints in their access to, or control over resources.
The absence of particular sets of resources therefore limits the growth of a firm. New ventures are
more likely to fail than mature organizations because they do not have access to critical resources,
such as money, people and network (Stinchcombe, 1965). This leads to a “liability of newness”
for start-up firms, which significantly reduces their survival rate and constrains growth (Bruton &
Rubanik, 2002; Gilbert, McDougall, & Audretsch, 2006). Therefore, resources or capabilities are
critical for new venture’s growth. In this study, we propose that different resources will predict
different growth strategies.
4
Resources-based capabilities and new venture growth strategies
In their review work on new venture growth literature, Gilbert et al. (2006) point out different
resource sets can lead to different growth strategies. Growth resulting from internal mechanism
requires new ventures to possess advanced technological capabilities in order to achieve product
breakthroughs (Zahra, 1996), whereas external growth through partnering arrangements requires
networks to reduce risks in expending to new markets as well as to establish their business
legitimacy in transitional economy. External growth through acquisition, as an aggressive growth
mode, contributes to a fast expansion into the new market by exploiting existing technologies,
distribution channels, market reputation and customer groups. In this study, we propose that new
ventures have three strategic choices to achieve competitive advantage and growth. First, organic
growth strategy has a strategic focus on internal R&D including product development,
enhancements and extensions (McCann, 1991). Second, growing through cooperative
mechanisms refers to growth where a venture licenses technology from another firm to jump-start
its own internal innovation process (McCann, 1991)or builds up strategic partnership to gain
access to distribution channels, customers and reliable sources of inputs in order to gain a
competitive advantage over rivals (Baucus, Baucus, & Human, 1996). Third, not applied to most
young and relatively inexperienced venture, growth could be aggressively obtained through
acquisitions where core business could be achieved either by forward or backward integration.
As suggested by Osborn and Hunt (1974), specific resources can be related to tactical and
strategic decisions and actions. Following this reasoning, high-tech new ventures may select their
growth strategies based upon resource capabilities. In this study, we identify four types of
resource-based capabilities that are likely to be particularly important for growth strategy: (1)
technological capability; (2) marketing capability; (3) networking relationship and (4) financial
5
capital. We expect that the growth strategies new venture make result from different resourcebased capabilities.
Based on internal innovation, organic growth strategy generates new product breakthroughs
for new businesses, and thus have great potenti als to enter niche markets which might be ignored
by established firms (Antoncic & Hisrich, 2001; Banbury & Mitchell, 1995). Both incremental
introduction and radical introduction arranged by new ventures could lead to sustainable
advantage and long-term growth (Banbury & Mitchell, 1995) because of the pioneering
advantage (Park & Bae, 2004). As high-tech industries in China face rapidly changing
technological and market conditions, first-mover advantages can greatly increase the possibility
to establish technological leadership and achieve better performance than incumbents. In this vein,
ventures growing through internal mechanisms rely on advanced technological capabilities,
valuable technology sources, patents and frequent upgrades to prompt organic growth (Roure &
Maidique, 1986; Siegel, Siegel, & Macmillan, 1993; Zahra, 1996). Therefore, we hypothesise:

Hypothesis 1. High tech new ventures with strong technological capabilities will tend to
prefer organic growth strategy above partnership growth strategy and acquisition growth
strategy.
When new ventures are ready to extend into new markets, other than innovative capability,
marketing capabilities or experiences are also critical to identify and develop competitive
products to capture prospective customers (McCann, 1991). Such capabilities can be even more
critical in high-tech industries in transitional economies. First, market condition in such a context
is likely to be conditioned not only by the level of existing competition but also by the
institutional factors (Fu, Tsui, & Dess, 2006; Zhao & Aram, 1995). New ventures are required to
understand how to compete in a turbulent market. Firms with strong marketing capabilities often
6
perform better and are less vulnerable to market changes. Second, small new ventures are likely
to pay considerable attention to product and process quality and to develop new products that are
valued by their customers. Once they finish “in-house” product or process development and
enhancement, successful new product launching, which requires strong marketing capability,
becomes important (Andersen & Kheam, 1998). In another word, innovative new ventures with a
competitive product and product technology have to take marketing actions continuously after
their initial product launch, like promoting new uses, promoting more frequent and large quantity
usage, and promoting product usage at new times (Kerin, Mahajan, & Varadarajan, 1990)0.Thus,
we propose:

Hypothesis 2. High tech new ventures with strong marketing capabilities will tend to
prefer organic growth strategy above partnership growth strategy and acquisition growth
strategy.
Partnering arrangements for venture growth are expected to reduce production and inventory
costs, speed product development, expand markets, or secure technology, while enjoying
congenial business relations with partners (Larson, 1991; Park & Kim, 1997). Complementary
resources allow new ventures to obtain external resources and integrate with their own resource
sets, thereby creating a resource bundle that provides unique and difficult-to-imitate value
(Barney, 2001; Harrison, Hitt, Hoskisson, & Ireland, 2001). In order to exchange required
complementary resources, ventures growing through partnership have to identify, cultivate and
manage their networks with different strategic partners and develop their networking skills to
utilise, maintain and extend the relationship (Ghauri, Hadjikhani, & Johanson, 2005). By doing
so, new ventures are likely to get access to suppliers, distributors and customers and establish
long-term relationship (Baucus, Baucus, & Human, 1996; Shepherd, 1991). Researchers in
7
general strategic management field conceptualise the facets of guanxi , interpersonal network or
relationship in China’s context, as a dynamic evolution – such as strong ties which are connected
with family members, former classmates or person coming from the same hometown, weak ties
which derive from strangers (Bian, 2002; Poutziouris, Wang, & Chan, 2002). Many founding
members of new ventures largely rely on friends or schoolmates to start their business in China,
showing the important role that strong ties play in organisations (Kraatz, 1998). Such strong ties
based on sharing of same natal or ancestral origin, or identical education and personal growingup routes, would imply the strong obligations and high expectations because of the embedded
degree of trust and dependability associated with people related either by kinship or emotional
closeness (Fu, Tsui, & Dess, 2006). These types of relationship aid the process of knowledge
application or exploitation, the control and protection of proprietary knowledge and related
intellectual property because of the high level of trust among individuals, which facilitates
innovation.
Such ties can have relative advantages in terms of leading to novel ideas, providing greater
access to a broader base of information and resources and enabling the transfer of knowledge
among individuals or teams (Uzzi, 1996). This provides growth opportunities for new ventures
through learning and cooperation (Hoegl, Parboteeah, & Munson, 2003). In addition, such an
association provides opportunities for new ventures to obtain information and other resources
such as financial injections from venture capitals or governmental sponsorship (Chiang & Fatt,
2004; Finegold, Wong, & Cheah, 2004; Shepherd, 1999; Yli-Renko, Autio, & Sapienza, 2001).

Hypothesis 3. High tech new ventures with various network relationships will tend to
prefer partnership growth strategy above organic growth strategy and acquisition growth
strategy.
8
Acquisition allows new ventures to obtain external advanced technology (Jones, Lanctot, &
Teegen, 2001), introduce their product or service offerings (Penrose, 1959), enjoy the reputation
that firm established in the market (Banbury & Mitchell, 1995) or extend into new markets
without physically experiencing a time-consuming internal development (Gilbert, McDougall, &
Audretsch, 2006). Evidence shows that 10% of the ventures grew primarily through acquisitions
(Delmar, Davidsson, & Gartner, 2003). Yet, this strategy would not be appropriate for those
young and small ventures in China not just due to their limited internal resources but also due to
the absence of well established institutional rules in China when transition from a centrally
planned to a market-oriented economy is in process. Theoretically and ideally, aggressive
acquisition can be applied when ventures possess sufficient resources and experiences in
handling the integration. McCann (1991) finds that slower-growing, publicly held firms are more
likely to make acquisitions as growth choice than privately held and younger ones. They enter
new business via acquisitions because they can access capital and equity more easily than
privately held firms, suggesting that financial resources may play a critical role in predicting
acquisition growth strategy. Therefore, we hypothesise:

Hypothesis 4. High tech new ventures with various financial sources will tend to prefer
acquisition growth strategy above organic growth strategy and partnership growth
strategy.
Based on the discussion above, we develop the theoretical framework which indicates the
relationship between resource-based capabilities and growth strategy, and the links between
growth strategy (Figure 1).
------------------------------------Figure 1 goes about here
------------------------------------9
3. Research Method
Sampling and Data Collection
The study sample consists of new ventures operating in high-technology sectors within China.
The sampling frame comprises firms located in the High Technology Experimental Zones of
Shanghai, one of the most developed high-technology industrial areas in the country.
There are approximately 30 High Technology Experimental Zones and Incubators in
Shanghai, with a total number of more than 1500 high-tech ventures and $3 bn RMB profit by
2003. We contacted the administrative offices of the zones and incubators, as well as industrial
associations to obtain firm lists, and then randomly selected 400 firms. Through formal and
informal sources of information, we obtained the names of top managers from the list.
Telephones and emails were used to explain the purpose of the study and invite their participation.
Of the 400 contacted firms, 306 agreed to participate. A good key informant, mostly within the
founding team, or top management team, with sufficient knowledge and rich information about
the strategy decision-making, was identified and contacted to secure an interview.
Many previous studies have recognised the difficulties in collecting primary data from firms
in China (Park & Luo, 2001; Zhou, Wu, & Luo, 2007). In order to overcome the problems of low
response rate, distrust and managers’ unwillingness to respond, we used local research assistants
to conduct interview-based questionnaire surveys with top managers in high-tech new ventures,
with a similar method done by Zhou et al. (2007). Four senior-level postgraduate business
students from a well-respected local university were trained to conduct face-to-face field visits
during the April to August 2007. Each of those selected students was provided with financial
support to conduct interviews and collect data. The research assistants, with adequate knowledge
about the research project, were instructed to take, in person, an official letter (issued by the local
10
institution) to the top managers of the selected firms, which ensure good response rates and data
reliability (Gao, Zhou, & Yim, 2007; Ghauri & Gronhaug, 2005; Hoskisson, Eden, Lau, &
Wright, 2000).
A screening questionnaire ensured that the respondents have sufficient knowledge to respond
to the questionnaire. All respondents were informed of the confidentiality of their responses in
advance. The average time for each interview was 30 minutes. A total of 306 responses were
collected. We removed 54 responses from the analysis because they had more than 8 years of
history from their establishment by year 2007. Thus, we got a sample of 252 high-tech new
ventures. We obtain a response rate of 63% of the total sample (252 out of an effective 400 firms).
The annual sales of the sample ranged from $ 20,000 RMB to $ 15 million RMB, with a
mean value of $ 160,000 RMB. Most of the ventures (74%) had been in business for at least 6
years. These ventures operate in a series of high-tech sectors such as information technology,
software development, biotechnology, and electronics product development. Most of the
managers (98%) were between 24 and 45 years of age. Over 40% of the respondents have
obtained Master or PhD degree. All respondents were involved with strategic business activities,
as defined by their position or role and decision-making responsibilities.
Measures
Growth Strategies
To measure the growth strategies adopted by the new venture, we drew on existing measures of
strategy pattern developed by McCann (1991). While Mccan (1991) originally summarised seven
growth choices: internal venturing via R&D, formal joint ventures with other firms, using
corporate partnering with large firms, licensing technology to/from other firms, acquiring firms in
closely related businesses, acquiring firms in unrelated business and being acquired by another
11
firm, we focused on six strategies: internal technological development, licensing technology
to/from other firms, partnering with other firms, acquiring firms in related or unrelated business,
and selling out the core unit of the firm, based on conceptualisation of existing literature (Gilbert,
McDougall, & Audretsch, 2006; Lu & Beamish, 2006; McGee, Dowling, & Megginson, 1995).
Technological Capability
According to prior research, technological capability include the use of advanced technology,
valuable technology sources, patents and copyright (Lee, Lee, & Johannes, 2001; Roure &
Maidique, 1986; Siegel, Siegel, & Macmillan, 1993; Zahra, 1996). Following prior research, we
measured technological capabilities in terms of organisation emphasis on innovation, existing
product/process patents or copyrights, high-profile technological team and product development.
Networking Relationships
Networking relationship, also known as social capital (Baron & Markman, 2000), external links
(Lee, Lee, & Johannes, 2001; Shepherd, 1991) or personal networks (Ostgaard & Birley, 1994),
is extensively studied in prior strategic management as well as entrepreneurship studies. In this
study, networking relationships are conceptualised as interpersonal relationship based on strong
ties (i.e., classmates, former colleagues, family members and etc.) and intra-firm relationship
based on weak ties (i.e. industrial association, governmental agencies and venture capital (Fu,
Tsui, & Dess, 2006).
Market Capability
The selection of which markets to enter and how to enter, characterised as two of the most
important marketing decisions for new ventures(Bantel, 1998; Park & Bae, 2004), are influenced
by the marketing resources and capabilities of new ventures. To measure such marketing
12
capabilities, we examined the nature of product/serving offerings, marketing expertise and
knowledge, and product promotion activities that new ventures have.
Financial Resource
Existing studies usually measured financial resources in terms the amount of total R&D
investment, advertising expenditure, and market research (Lee, Lee, & Johannes, 2001;
Schoonhoven, Eisenhardt, & Lyman, 1990), based on the logic that firm strategy and
organisational performance largely depend on the amount and appropriate timing of financial
resources invested during development period of new ventures. However, as suggested by Gilbert
et al. (2006), we examined different financial resources of new ventures in order to enhance
understanding of whether and how financial capital enables or constrains the strategic decisions
entrepreneurs make and ultimately the growth of the firm (Gilbert, McDougall, & Audretsch,
2006; Pissarides, 1999). We asked the respondents to evaluate two types of financial capital: 1)
internally oriented and socially oriented funds, referring to internal generated funds and bank
loans (Winborg & Landstrom, 2001) and 2) public equity offerings.
Control Variables
We controlled for several variables, which fall outside the purview of our theory, yet might affect
growth strategy. These control variables include firm size, firm age, the life cycle of firms and the
industry life cycle. We controlled for firm size, which is measured as the number of full-time
employees (Lee, Lee, & Johannes, 2001). We controlled for firm age, which is the number of
years elapsed after founding until 2007.
Prior studies suggested that firm stage and industry stage, from the life cycle perspective, can
influence the strategic choices (Bantel, 1998; McCann, 1991; Robinson, 1999). New ventures’
growth choices are examined as paralleling its life cycle of start-up, rapid growth, maturity and,
13
either, renewal or decline stages. The existence of stages of new ventures may lead to mixed
results as (Kazanjian, 1988; McCann, 1991). We controlled for the firm and industry life cycle in
terms of infancy (very early growth stage), early growth stage (rapid, still increasing rate of
growth), late growth stage (growing, but at a slowing rate), mature (about as fast as it will get)
and decline (decreasing growth rate), as operationalised by McCann (1991).
Common Method Bias
We use several precautionary design and statistical procedures to minimize common method bias.
First, we follow (Harrison, McLaughlin, & Coalter, 1996) suggestion and use multiple item
constructs, because common method bias is more problematic at the item level than at the
construct level. Second, the items we use to measure independent and dependent variables occur
separately in time and in varied question order, as suggested by (Barden, Steensma, & Lyles,
2005). We check for this potential problem in my data using Harman’s single-factor test (Gao,
Zhou, & Yim, 2007; Podsakoff & Organ, 1986). The exploratory factor analysis of the all
multiple-item constructs results in the expected factor solution that accounts for 75.63% of the
total variance, and the first factor only accounts for 14.54%. Because a single-factor solution does
not emerge and the first factor does not explain most of the variance, common method bias is not
a serious concern for this study.
Measurement Validity
Following (Anderson & Gerbing, 1988), we took a two-step approach to examine the reliability
and validity of the measures. We first ran exploratory factor analyses for firm capabilities,
resources and growth strategies. The results indicate that all items have high loadings on their
factors, as theoretically expected, and there are no substantial cross-loadings (Cronbach Alpha is
14
reported in the Appendix). We next assessed the unidimenstionality of the measures with a
confirmatory factor analysis (CFA) using AMOS (see the Appendix). The overall model fits the
data satisfactorily: χ(181) = 296.408, p = 0.000; confirmatory fit index = 0.91, incremental fit
index = 0.92, GFI = 0.91; and root mean squared error of approximation = 0.050. The CFA
results support its convergent validity, because all factor loadings for the underlying constructs
are significant (p <0.01) (See Appendix). In testing for the discriminant validity of the latent
constructs, we ran series of chi-square difference tests for all constructs in pairs using a
constrained and an unconstrained model. In each case, the constrained model is significantly
worse than the unconstrained model, in support of discriminant validity (Anderson & Gerbing,
1988). Taken together, these results indicate that the measurement model fits the data adequately
and possesses both convergent and discriminant validity.
4. Analyses and Results
With the unidimensionality of the measures established, we use the composite scores of each
construct in the analysis. Table 1 presents the means, standard deviations, and correlations for all
variables.
------------------------------------Table 1 goes about here
------------------------------------We first ran exploratory factor analysis of all growth items to verify the existence of different
growth choices of new tech start-ups in China. Then we ran a set of OLS regressions to test the
hypotheses regarding the antecedents of growth strategies. To minimize the confounding effects
15
of other industry and firm variables, we include firm size, firm age, firm life stage, and industry
stage variables as controls.
As showed in the Appendix, three growth strategies have been identified. The first growth
choice is to grow internally through innovation and R&D, which could be termed as organic
growth. The second option is to grow either via licensing technology to/from other firms or
partnering with other firms, labels as partnership growth. The last choice is to acquire firms in
related or unrelated business, or to sold out the core unit of the firm
The set of regressions estimate the antecedents of new venture’s growth strategy. Table 2
shows that technological capability has a positive effect on organic growth (β =0.125, p <0.05).
Therefore H1 is supported. Similarly, marketing capability has a positive effect on organic
growth (β =0.204, p <0.01), consistent with H2. Besides, we found marketing capability also
contributes to the choice of partnership growth (β =0.189, p <0.01), indicating that firms with
strong marketing capability tend to prefer organic growth strategy and partnership growth
strategy more. H3 is supported because both strong ties (β =0.195, p <0.001) and weak ties (β
=0.111, p <0.05) have a positive effect on partnership growth strategy, indicating network
relationships increase the likelihood of choosing partnership growth strategy. In addition, weak
ties is also positively related to organic growth strategy (β =0.143, p <0.05). Funding through
internal sources such as internal fund generation or bank loans / debts (β =0.288, p <0.001), and
funding through public equity offering (β =0.392, p <0.001) have a positive effect on acquisition
growth strategy, lending support to H4. Besides its impact on acquisition growth strategy,
internal financial capital also affects organic growth strategy (β = -0.256, p <0.01) and
partnership growth strategy (β =0.193, p <0.05).
------------------------------------Table 2 goes about here
16
------------------------------------Controls. Table 2 reveals the effects of control variables. Firm size is positively related to
new venture’s competitive advantage (β =0.193, p <0.01) and profit (β =0.294, p <0.001). Firm
age has a negative effect on acquisition growth strategy (β = -0.129, p <0.05). New ventures in a
later life stage are more likely to grow through acquisition (β =0.198, p <0.001), and they also
tend to have a lower survival rate (β = -0.239, p <0.001) and higher profitability (β =0.144, p
<0.05). Last, industry stage does not affect new venture’s growth choices but positively affects
their viability (β =0.222, p <0.01) and negatively affects their competitive advantage (β = -0.126,
p <0.1) and profit (β = -0.156, p <0.05).
5. Discussion
The results presented here are noteworthy in providing the first evidence that high-tech new
ventures in transitional economies, such as China, have similarities and differences, with their
counterparts in more developed economies.
Resource-based capabilities and new venture growth strategies
As shown in Figure 2 (compared with Figure 1 as the conceptual framework), we provide
evidence to support the arguments of entrepreneurship scholars regarding the importance of
firm-specific resources for strategic choice (Chandler & Hanks, 1994; McGrath, Venkataraman,
& Macmillan, 1994) applicable in transitional economies. Various theoretical growth choices
drawn upon literature (Bantel, 1998; McCann, 1991; Shepherd, 1991) do load together, leading to
the characterisation of three main growth strategies adopted by Chinese high-tech new ventures.
These growth strategies with different emphases on internal technological development,
17
partnership and external acquisitions demonstrate the various growth paths that new ventures in
China adopt for growth.
------------------------------------Figure 2 goes about here
------------------------------------Typically, high-tech firms in transitional economies tend to find a competitive niche by
producing low cost, undifferentiated products (Bruton & Rubanik, 2002) while in developed
economies it is typically believed that new ventures should be willing to both invest in new
product innovation and experiment with new innovative processes and methods to service market
needs (Low & Abrahamson, 1997; McCann, 1991). Although we did not differentiate the types
of technological innovation, the evidence here supports the argument that innovation was viewed
as a “concrete” strategic focus in pursuing growth (Tan, 2001).
The ability to identify the changing situation during the turbulent time of transition has a
significant impact on the strategic choice (Tan, 2007). Here, evidence shows that Chinese hightech new ventures with strong market capability can enhance or develop technological products
and services in respond to market requirements.
The results indicate that high-tech new ventures in China are utilising various capital
resources to grow up aggressively. This can be explained by new ventures operating in the
business market with increased environmental complexity and scarcity aimed at liquidity through
short-term strategic decision such as mergers and acquisitions (Nee, 1992; Tan, 1996).
While existing research addresses the importance of ties with venture associations, venture
capitals, government agencies or other enterprises in increasing the knowledge flows and external
resources injection (Birley, 1985; Ostgaard & Birley, 1994), our results are insteresting (Lee, Lee,
& Johannes, 2001). In our study, the positive and statistically significant effect of relationship
18
based upon weak ties is found in organic growth strategy, indicating that links with professional
associations can have the potential for greater access to a broader base of information and
resources, enabling new venture to have broader perspectives necessary for innovative strategies
and actions (Fu, Tsui, & Dess, 2006). Partnership growth strategy is significantly linked with
network relationships based upon both strong and weak ties. We suggest that high-tech new
ventures rely on both networks to deal with interpersonal and intra-firm relationship. Furthermore,
we offer additional support for the prior argument that various network relationships and
capabilities enable a balance between organisational controls and protect proprietary knowledge
in order to effectively respond to competition (Fu, Tsui, & Dess, 2006; McGee & Dowling, 1994),
which increases the possibility for cooperation with various partners.
6. Conclusion
Our study aims to make several contributions. Gilbert et al.’s (2006) extensive review of new
venture growth literature has demonstrated that researchers have been intrigued with the question
of why some ventures grow more rapidly than others. One dominant view is that “growth will
occur most readily when the entrepreneur possesses the resources that enable growth” (Gilbert et
al., 2006: p 937). Researchers have suggested that a variety of resources such as human capital
and financial capital are important for growth of ventures, yet few attempts have been made to
assess their differential effects on how new ventures choose to grow. Our study extends current
literature by examining the differential effects of a set of internal or external resource based
capabilities. The study advances our knowledge by suggesting that internal and external growth
requires different sets of competencies. For example, internal growth through innovation may
19
demand high technological capability while growth through partnership needs new ventures to
have networking relationships with various partners.
Practically, to successfully pursue their growth strategy, new ventures should possess
corresponding resources or capabilities. For example, firms that intend to expand their entity via
organic growth need to have strong technological and marketing capabilities. Firms choose to
grow through partnership have to maintain both strong ties and weak ties with their business
partners to realize growing via partnership. For firms that are interested in more aggressive
growth choices such as through acquisitions, to obtain adequate financial capital via different
streams such as internal generation, bank loans or IPO is the most important issue to consider.
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25
APPENDIX: Measurement Items and Validity Assessment
a
Fixed factor loading; b Single scale. Notes: CA = Cronbach’s alpha.
26
Figure 1 Conceptual Framework
H1
Technological
Capabilities
Organic Growth
H2
Marketing
Capabilities
Partnership Growth
H3
Network
Relationships
H4
Acquisition Growth
Financial Resources
Resources
Growth Strategy
Notes: Firm age, firm size, and firm type are control variables.
Figure 2 Modified Conceptual Framework, with Results Presented
+0.125
Technological
Capabilities
Organic
Growth
+0.204
Marketing
Capabilities
+0.143
Significant Relationship
-0.256
StrongH2c
Ties
Network
Relationships
+0.195
+0.111
Weak Ties
Partnership
Growth
Insignificant Relationship
+0.193
+0.288
Financial
Resource
s
I/S generated
+0.392
Acquisition
Growth
Public offering
Resources
Growth Strategy
27
Table 1Means, Standard Deviations, and Correlations
1. Organic Growth
2. Partnership Growth
3. Acquisition
Growth
4. Technological
Capability
5. Marketing
Capability
6. Strong Ties
7. Weak Ties
8. Internally/Socially
Generated Funds
9. Public Equity
Offerings
10. Firm Size
11. Firm Age
1
1
.210(**)
-.113
2
3
1
.196(**)
1
.267(**)
.195(**)
.050
1
.291(**)
.298(**)
-.002
.516(**)
1
.000
.202(**)
-.224(**)
.317(**)
.300(**)
.170(**)
.229(**)
.124(*)
.326(**)
.157(*)
.315(**)
-.157(*)
-.135(*)
.117
.603(**)
-.006
-.005
12. Firm Stage
13. Industry Stage
-.028
.017
.086
.217(**)
-.113
-.160(*)
Mean
3.925
3.762
4
5
6
7
8
9
10
11
.199(**)
.341(**)
-.074
1
.302(**)
.114
1
.104
1
.090
-.018
.176(**)
.104
.361(**)
1
.167(**)
-.211(**)
.088
-.092
.108
-.183(**)
.067
-.153(*)
.154(*)
-.135(*)
.068
-.029
.034
-.210(**)
.016
-.127(*)
.056
-.071
-.016
-.108
2.652
4.052
4.09
3.788
-.027
.179(**)
3.929
12
13
.177(**)
-.057
1
.068
1
-.183(**)
.024
-.043
-.231(**)
.148(*)
-.026
.303(**)
.427(**)
1
.340(**)
1
3.13
2.718
3.459
5.103
2.754
3.226
***p <0.001, **p <0.01, *p <0.05 (two-tailed).
28
Table 2 Resources, Capabilities and Growth Strategy (Standard Parameter
Estimates)
Organic
Growth
Control Variables
Firm size
Firm age
Firm stage
Industry stage
Independent Variables
Technological
capability
Marketing capability
Networking
relationships
Strong ties
Weak ties
Financial resources
Internally/Socially
generated funds
Public equity
offerings
R-square
F-value for
incremental R-square
Partnership
Growth
Acquisition
Growth
0.021
0.036
-0.107
0.081
0.100
-0.086
-0.077
-0.015
0.125*
0.030
0.021
0.204**
0.189**
-0.010
-0.058
0.143*
0.195***
0.111*
0.074
-0.028
-0.256**
0.193*
0.288***
0.032
-0.088
0.392***
0.236
7.301***
0.470
20.889***
0.181
5.228***
-0.041
-0.129*
0.198***
-0.075
***p <0.001, **p <0.01, *p <0.05 (two-tailed).
29